Sharemarket tips for the Mum and Dad investor
I think it is fair to say that a lot of people dream of hitting it big on the sharemarket and some do but for everyone who has found a pot of gold in the markets there are countless others who entered the markets blindly without doing their homework or having a strategy in place; this article is to give you some pointers if you have some money to spare and are looking for somewhere to invest your hard-earned cash.
In the sharemarket, as in real life, if you are able to reduce your number of bad decisions then you will be better off; not that there is anything wrong with making mistakes.
You are sometimes better off by learning a lesson the hard way if that is what it takes for you to get the lesson.
Here then are my sharemarket pointers.
1 Investing directly into the sharemarket is beyond most small investors because their ability to diversify their portfolio is limited therefore the only option is to invest all of their funds in one company which leaves them open to disaster. If that particular industry which the company is involved in suffers a downturn, value of the share heads south. It is similar to a horse racing fan attending the track and betting all of their money on the one horse instead of dividing their bankroll between several horses.
Small investors are able to invest in the markets, however, and enjoy the same benefits of larger investors by investing in managed funds; this is where your savings are combined with other investors. You do not have the choice of which companies to invest your money as that decision is left to the trust manager, however, you can choose which type of fund to invest in; growth, balanced, or conservative.
2 Investing in the markets is a long-term game, therefore, if you require the money in the short term then you may be better off leaving your money in fixed term interest bearing accounts however, having said that, investing in the markets can increase your savings if you give it enough time. Young people have the advantage of time on their side; they are able to take more risks with their money because they have more time to recove from financial setbacks than their parents.
3 Don’t try to time the markets! It is time and not timing which is the key to making money in the share
market. If you are waiting until the markets dip before investing you are missing out on plenty of opportunities to increase your capital and this is particularly true in a rising market.
4 Decide whether the money is required in the short-term, medium-term, or long-term before deciding on where to invest your money.
Money needed in the short term or on standby is money which may be needed for car repairs, a holiday, household expenses etc
Medium term funds is money needed for a new car
Long term funds are savings for your retirement such as your superannuation funds.
Short term is not money which should be invested in bank deposits where you are able to have easy access to it.
Medium term money can be invested in managed funds where you are able to have easy access to it but still have to potential for it to grow.
Long term money is money invested in a retirement fund such as kiwisaver in New Zealand.